New York is sticking to its guns when it comes to taxing the likes of Amazon and Overstock.com, but the e-tailers are fighting back.
Amazon and Overstock.com are challenging a New York law passed in 2008, which forces companies with affiliates within the state to collect sales tax. However, Amazon said this law is unconstitutional because a 1992 Supreme Court decision said retailers that don’t have a nexus of operation in a state does not need to collect sales tax.
New York law has an answer for that, though. It said that websites with purchase buttons for Amazon or redirect to Amazon as well as other national retailers receive fees for doing so — making them local solicitors.
Amazon argued that web referrals are less like solicitors or a local sales force, and more like advertising — even comparing this model to buying newspaper advertising. Of course, the state of New York disagreed, saying that there’s a difference between advertising and what Amazon is doing.
Amazon and the state of New York duked it out in the State of New York Court of Appeals yesterday. A decision is expected in June.
From 2008 (when the state law was passed) until February 2012, online retailers collected $360 million in sales tax on over $4 billion in online transactions.
Amazon has been fighting states that force it to collect sales tax for years (except in Kansas, Kentucky, New York, North Dakota and Washington). The e-tailer fled many states that attempted to force tax collection on the company, such as California and Illinois. But between states looking for ways to offset large financial deficits and brick-and-mortar stores like Best Buy complaining about Amazon being unfair competition, the issue swelled.
Amazon CEO Jeff Bezos said many times that his company would agree to collect taxes if there were some sort of federal legislation.
But eventually, Amazon finally broke down and started collecting sales tax in certain states, which allowed it to build more distribution centers within those states. For instance, Amazon announced that it would collect sales tax in New Jersey last May so that two Amazon distribution centers could be built.
This led to faster shipping for customers, such as Amazon’s same-day delivery program, making it more competitive than ever (especially since it still had cheaper prices than most brick-and-mortars).
However, e-commerce firm ChannelAdvisor reported last month that third-party sellers on Amazon saw a drop in sales after the new tax rules in some states. For example, Amazon started collecting a sales tax of 7.25 percent to 9.75 percent in California in September 2012. ChannelAdvisor found that its clients’ sales on Amazon before sales tax collection in California were 5 to 10 percent above other states. After the sales tax collection began, sales in California matched those of other states. In early November 2012, California sales fell 10 percent below sales in other states.
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